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March 26, 2013

Your Client’s Brain: Coping as Your Clients Age

As the brain ages, there is a decline in the ability to make decisions matched by a misplaced confidence in that ability. How to protect your clients—and you—as they age.

A recent study of nearly 750 older people in Scotland found that exercising several times a week protected the brain from age-related changes even better than social and mentally challenging activities. But even in healthy aging, Greenberg emphasized, “We have a general reduction in cognitive capacity and a specific decline in decision-making ability.” Paradoxically, this decline is accompanied by increased confidence in our decision-making skills. These two developments often combine to make us more susceptible to insidious types of financial persuasion—the reason why scammers target older folks with deplorable success.

Researchers find that people make the best financial decisions in their mid-50s, as reported in a July AdvisorOne.com article by Michael Finke, a professor at Texas Tech University. Past that age, risk-adjusted investment returns tend to decline steadily. Advisors “need to acknowledge that cognitive decline is an important part of the retirement planning process,” Finke wrote, and should plan for incapacity early in the client relationship, perhaps by requesting written authority to discuss the client’s financial affairs with their designated attorney-in-fact if it should ever seem appropriate.

Dementia is not always easy to spot, as Investment Advisor contributing editor Marlene Satter pointed out in “You Must Remember This.” “Family members may chalk up early signs to simple forgetfulness,” she wrote. “Clients themselves may be unaware of their own condition, thus failing to reveal it for insurance underwriting without any attempt at deception.”

The more you can encourage older clients to surround themselves with a team of trusted family members and experts, the more effectively you will be able to protect them from cognitive decline they may not recognize. You may want to schedule periodic meetings with these clients and other members of their team.